Spend Matters welcomes a guest post from Jara Zicha of Mintec.
Every day in the news we hear about the cost of gas, and we have now reached the highest average price to fill our car since 2008. Is there an alternative?
Methanol, as opposed to ethanol, is probably not well-known in the US. You may remember it from your high school chemistry class but you might not be aware of its growing significance.
Methanol is primarily produced from the methane component of natural gas. Methanol has a variety of uses, but its importance to the energy industry as a gasoline substitute is growing.
Currently around 12 percent of methanol is used in fuel blending, with China being the world leader. The dependence on it in China is so strong it has now become recognised as a strategic commodity. Methanol accounts for 8 percent of total fuel consumption in China.
As a fuel substitute, methanol has many advantages. It is greener, cheaper, easily blended with gasoline, and unlike ethanol, its feedstock doesn’t have to compete for food consumption. However, it is not currently part of the US fuel market. In the 80s and early 90s, methanol was used as an alternative fuel in the US, but since then its blending into gasoline has been abandoned, possibly due to limited availability and the high price.
Recently though, the methanol industry has been thriving due to the shale gas revolution and the abundance of its cheap feedstock, natural gas. Natural gas prices have fallen 30 percent over the decade while crude oil prices have more than doubled. The price disparity of natural gas over crude oil has invited vast amounts of capital investment into the methanol sector.
Companies such as Methanex, OCI, Celanese, or Northwest Innovation Works are expected to invest more than $8.5 billion by 2018 to increase the US methanol capacity. New facilities have been planned along the Gulf Coast in Texas and Louisiana, adding 10 percent to the global capacity of around 100m tons per annum. There is additional capacity investment in China as well. Global demand is projected to grow by 11 percent each year between 2014 and 2017, so these additions may not be enough.
There are two major factors currently standing in the way of methanol blends making it to pump stations: price and legislation.
Even though methanol is produced from natural gas, its price strongly correlates with the price of crude oil due to its use as a gasoline substitute. As such, the price advantage over crude oil has been limited so far. Prices have fallen over 15 percent since the beginning of the year, but they may have to trend even lower for methanol to be seriously considered as an automotive fuel.
Lastly, it would have to be approved by the U.S. Environmental Protection Agency. This is a potentially slow process that could also depend on the success of the lobbyists in the methanol industry. Either way, at least there is some hope to keep costs down on your journey to work.